SEPTEMBER 25, 2007

The funding of the sport

Max Mosley has been complaining to members of the F1 media that the sport is wasting too much money. The FIA President is entirely right.

However railing against the fact that manufacturers and billionaires keep F1 afloat is not about to change anything. Certainly, the days of the idle rich being able to play in F1 have long gone but there is still plenty of money about to fund 10 Formula 1 teams, as has been the case for the last 20-odd years. Indeed there is more reason than ever for big companies to use the sport to spread the word across the globe. Demand for cars is slow in Europe, falling in the United States (where there are fears of an economic downtown) and decreasing in Japan, where the population is getting older. The industry is united on the idea that growth must come from the emerging markets in China, India and Russia. These are the very markets in which F1 can - and does - have an impact. Similarly, with those who have money to spend, F1 is the best way to achieve worldwide recognition. Red Bull has used its vast profits to achieve this and ING picked out F1 as the most effective form of advertising after an in-depth study of all the alternatives.

The money is out there and F1 will go on spending it for as long as it keeps arriving. Skimping and saving on technology means that the sport's value will diminish to companies which use F1 because it pushes the boundaries. In areas such as advanced materials, CFD, rapid manufacturing and other areas, F1 is the best place for research to be done. This value is recognised by some of the deals that exist such as those between Renault F1 and Boeing, Ferrari and Finmeccanica and McLaren and BAe Systems.

Mosley's belief that F1 team bosses should stop arguing about the Concorde Agreement and focus on the money being wasted seems out of place. He argues that "time should not be wasted discussing how the money is to be distributed" and over how much technical cooperation is allowed between teams. Everyone in the sport knows that around half the money generated disappears into a massively complicated series of offshore companies controlled either by financial companies or by family trusts. The sport gets none of that money.

This is an unusually low percentage for the players in any sport to receive.

By way of comparison the International Olympic Committee has its own marketing business and generates more money than F1. Around 92% of that money goes back to the Olympic Movement to support the staging of the Olympic Games and to promote the worldwide development of sport. The IOC retains only 8% of for the operational and administrative costs. The latest financial figures from the FIFA soccer federation show that 69% of its income goes to pay for events and the development of the sport around the world.

There were good reasons why Mosley leased the commercial rights to the sport for 100 years to Bernie Ecclestone's company for something in the region of $350m. This gave the FIA money to create a firm financial footing for itself and clearance of that deal by the European Union cemented the FIA's powerbase. But that recognition came at a cost for the sport. The latest financial figures show that the sport generated $750m last year from races fees and TV deals. A great return on a very cheap investment.

Perhaps rather than complaining about the teams the FIA should be looking at ways of re-acquiring the commercial rights of the sport and running the business for the benefit of those involved rather than allowing the money to disappear. With modern financing techniques, the federation could probably borrow the money secured on the revenues of the business it would be buying. There would be a period when those debts would have to be paid but after that was done, the sport would be able to use the money to improve and market itself.